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Breaking News: CFTC charges FXCM with undercapitalization

  • #1
  • First Post: Aug 19, 2016 7:56am Aug 19, 2016 7:56am
Breaking Forex Industry News

In a very bizarre filing, the U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement action today against the Forex Capital Markets LLC unit of Retail Forex broker FXCM Inc (NYSE:FXCM), charging FXCM with undercapitalization, failure to timely report its undercapitalization violation, and guaranteeing against customer losses.

Whats bizarre about the CFTC filing?

https://www.leaprate.com/2016/08/cft...e-but-why-now/
  • #2
  • Edited 12:49pm Aug 19, 2016 12:31pm | Edited 12:49pm
FXCM Issues Statement on CFTC Complaint

NEW YORK, Aug. 19, 2016 (GLOBE NEWSWIRE) -- FXCM Inc. (NYSE:FXCM) (or the "Company"), today issued a statement on the complaint filed yesterday by the Commodity Futures Trading Commission (the "CFTC") alleging violations of certain provisions of the Commodity Exchange Act. The CFTC claims relate to the unprecedented and unforeseen crisis that occurred in January 2015 more than twenty months ago when the Swiss National Bank ("SNB") shocked the world currency market by announcing in the middle of a trading day that it was discontinuing the minimum exchange rate of the Swiss Franc to the Euro (the "SNB Event"). The Company is very disappointed by the CFTC's decision to file this complaint and attempt to punish FXCM who, like other market participants, was a victim of the SNB Event.

The SNB Event damaged world markets and damaged FXCM and its customers. By the close of business on January 15, 2015, FXCM customers lost approximately $225 million. As a result of such losses, FXCM experienced for the very first and only time in its history a one-day regulatory net capital shortfall. FXCM thereafter promptly notified both the CFTC and the National Futures Association (the "NFA") of its net capital shortfall due to the unforeseen SNB Event. Within hours of that notification, teams of CFTC and NFA personnel were on site at FXCM's offices.

Faced with the crisis of the SNB Event, FXCM and its board of directors worked around the clock to raise the funds needed to cure its regulatory shortfall. We succeeded. By the next afternoon, the Company cured its capital shortfall through a $300 million loan from Leucadia National Corporation. We averted the crisis. Given those facts, we could not be more disappointed that the CFTC has decided to pursue an undercapitalization violation claim against FXCM. Such a claim under these circumstances is unprecedented and unwarranted. We are also disappointed in the CFTC's intimation that the Company's "seatbelt" system contributed to the FXCM's undercapitalization during the SNB Event. To the contrary, the Company's seatbelt system prevented FXCM and its customers from suffering additional trading losses that day.

Equally unwarranted is the CFTC's claim that the Company did not timely notify the CFTC of its net capital shortfall. As noted above, the regulators were fully apprised of the capital shortfall and, within hours of the SNB Event, the CFTC and the NFA were on site at FXCM's offices.

We also see no basis for the CFTC's claim that the Company improperly guaranteed customers that they would not lose money. To the contrary, FXCM repeatedly represented to and warned its customers of the significant risks of trading FX and that such trading is appropriate only for individuals who can assume risk of loss in excess of their investment and margin deposit. In fact, FXCM customers were required to acknowledge in writing that they received no guarantees of profit or freedom of losses from FXCM or its representatives.

This action is unfortunate and disappointing, but the good news is that, because we acted as expeditiously as we did in January 2015, we protected our clients, we protected our employees, we protected our shareholders, and we protected our franchise.

About FXCM Inc.

FXCM Inc. (NYSE:FXCM) is a leading provider of online foreign exchange (FX) trading, CFD trading, spread betting and related services. Our mission is to provide global traders with access to the world's largest and most liquid market by offering innovative trading tools, hiring excellent trading educators, meeting strict financial standards and striving for the best online trading experience in the market.

Clients have the advantage of mobile trading, one-click order execution and trading from real-time charts. In addition, FXCM offers educational courses on FX trading and provides free news and market research through DailyFX.com.

Trading foreign exchange and CFDs on margin carries a high level of risk, which may result in losses that could exceed your deposits, therefore may not be suitable for all investors. Read full disclaimer.

Contacts
Jaclyn Sales, 646-432-2463
Vice-President, Corporate Communications and Investor Relations
[email protected]
  • #3
  • Aug 19, 2016 1:03pm Aug 19, 2016 1:03pm
Quoting PoundTrader
Breaking Forex Industry News In a very bizarre filing, the U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement action today against the Forex Capital Markets LLC unit of Retail Forex broker FXCM Inc (NYSE:FXCM), charging FXCM with undercapitalization, failure to timely report its undercapitalization violation, and guaranteeing against customer losses. Whats bizarre about the CFTC filing? https://www.leaprate.com/2016/08/cft...e-but-why-now/...
Just regulators desperately using excuses to get rid of Retail FX industry. First SEC got rid of IB and now CFTC is tackling the biggest retail FX broker by going after something that happened 1 year ago? LOL
Make your losses in demo. Earn your profits live.
  • #4
  • Aug 19, 2016 9:44pm Aug 19, 2016 9:44pm
Quoting Forexia
{quote} Just regulators desperately using excuses to get rid of Retail FX industry. First SEC got rid of IB and now CFTC is tackling the biggest retail FX broker by going after something that happened 1 year ago? LOL
Yep, +1

This is getting ridiculous.
  • #5
  • Aug 19, 2016 11:36pm Aug 19, 2016 11:36pm
Now I am far from an FXCM fan, however this only further demonstrates what morons are regulating this industry in the US. FXCM was temporarily undercapitalized due to their NDD model, while the thieves at Oanda and Forex.com profited on that very same day. Then they try to fool the naive by saying we are forgiving negative balances. What negative balances? You were holding the other side of the trade. The other two should be penalized, not FXCM.

Dear NFA and CFTC,

We are not a bunch of idiots trading spot fx. Just state your clear agenda as opposed to making the naive believe you are protecting us. By lowering leverage, you force us to make higher deposits, yet you won't allow segregation of funds. By eliminating hedging and creating FIFO, you make it impossible to recover a position. If you truly have the public's best interest here, outlaw the market maker, enforce everyone to be DMA/STP, require the broker to report for audit all the trades for the day (ASIC does it) and for God's sake, insure our funds!!!!
  • #6
  • Aug 20, 2016 10:00am Aug 20, 2016 10:00am
Quoting pipmaster77
Now I am far from an FXCM fan, however this only further demonstrates what morons are regulating this industry in the US. FXCM was temporarily undercapitalized due to their NDD model, while the thieves at Oanda and Forex.com profited on that very same day. Then they try to fool the naive by saying we are forgiving negative balances. What negative balances? You were holding the other side of the trade. The other two should be penalized, not FXCM. Dear NFA and CFTC, We are not a bunch of idiots trading spot fx. Just state your clear agenda as opposed...
TRUE
  • #7
  • Aug 20, 2016 11:01am Aug 20, 2016 11:01am
Quoting pipmaster77
Now I am far from an FXCM fan, however this only further demonstrates what morons are regulating this industry in the US. FXCM was temporarily undercapitalized due to their NDD model, while the thieves at Oanda and Forex.com profited on that very same day. Then they try to fool the naive by saying we are forgiving negative balances. What negative balances? You were holding the other side of the trade. The other two should be penalized, not FXCM. Dear NFA and CFTC, We are not a bunch of idiots trading spot fx. Just state your clear agenda as opposed...
And furthermore, if you want to punish somebody who's "undercapitalized", then they should go after ALL of the firms on that day because FXCM wasn't the only one I am sure who lost money on that day. No they are just picking on the leader to try to bring down the industry. What did they think to achieve by destroying a Billion-dollar industry? Retail FX is NOT just a few firms; it's an ENTIRE industry that touches upon many sectors of the economy. You think all of us, after not trading retail FX is going back to trading slow-moving stocks or expensive low-volume futures? Yeah right. There is a reason WHY we are trading retail FX and NOT stocks or futures. And what happens to the software engineer that lost his/her job because you single-handedly killed an industry? I guess they will go to those real online gambling sites to code for them.
Make your losses in demo. Earn your profits live.
  • #8
  • Aug 20, 2016 11:25am Aug 20, 2016 11:25am
Quoting Forexia
{quote} And furthermore, if you want to punish somebody who's "undercapitalized", then they should go after ALL of the firms on that day because FXCM wasn't the only one I am sure who lost money on that day. No they are just picking on the leader to try to bring down the industry. What did they think to achieve by destroying a Billion-dollar industry? Retail FX is NOT just a few firms; it's an ENTIRE industry that touches upon many sectors of the economy. You think all of us, after not trading retail FX is going back to trading slow-moving stocks...
Well there are only two others left, they drove every one else away. Oanda and Forex.com were not under capitalized because they made a killing that day. They made all the money their customers lost. Then tried to look like the "good guys" by forgiving all negative balances. Of course they could, they didn't lose anything, like I said, they made a killing! These regulators really have no clue what they are regulating. How about instead of all the bullshit that hurts the trader, we prevent the brokers from freezing their platform, requoting, having random price spikes not seen anywhere else, etc. etc. Nah, let's just lower leverage and make them close FIFO. So friggin stupid.
  • #9
  • Aug 20, 2016 2:53pm Aug 20, 2016 2:53pm
Quoting pipmaster77
{quote} Well there are only two others left, they drove every one else away. Oanda and Forex.com were not under capitalized because they made a killing that day. They made all the money their customers lost. Then tried to look like the "good guys" by forgiving all negative balances. Of course they could, they didn't lose anything, like I said, they made a killing! These regulators really have no clue what they are regulating. How about instead of all the bullshit that hurts the trader, we prevent the brokers from freezing their platform, requoting,...
WHY would they want to stop brokers from freezing platforms, requoting, stop-hunting when those are the common tactics of liquidity providers like Deutch Bank, Citibank, Saxo and etc. who are really the ultimate market makers in the FX industry, not just retail FX industry? Remember, those regulators only dare to crack the whip at us little retail traders, but against those $10-trillion asset liquidity brokers, they are meek as pussycats.
Make your losses in demo. Earn your profits live.
  • #10
  • Aug 20, 2016 9:23pm Aug 20, 2016 9:23pm
Quoting Forexia
{quote} WHY would they want to stop brokers from freezing platforms, requoting, stop-hunting when those are the common tactics of liquidity providers like Deutch Bank, Citibank, Saxo and etc. who are really the ultimate market makers in the FX industry, not just retail FX industry? Remember, those regulators only dare to crack the whip at us little retail traders, but against those $10-trillion asset liquidity brokers, they are meek as pussycats.
Yes, very true. However, I do not have an issue with the banks doing it. I have an issue with the broker having the conflict of interest with me while they are the ones controlling the software. We already know it's a manipulated game, but it can still be beaten, but no way can you beat it when you are trading against the party controlling the software. Market making on the broker side should be illegal. Every broker should be required to provide STP/DMA access, period.
  • #11
  • Aug 21, 2016 2:13am Aug 21, 2016 2:13am
Quoting pipmaster77
{quote} Yes, very true. However, I do not have an issue with the banks doing it. I have an issue with the broker having the conflict of interest with me while they are the ones controlling the software. We already know it's a manipulated game, but it can still be beaten, but no way can you beat it when you are trading against the party controlling the software. Market making on the broker side should be illegal. Every broker should be required to provide STP/DMA access, period.
No I DO have an issue with anybody doing any of those unscrupulous, dishonest maneuvers that do not play fair. If no brokers at the retail level are allowed to stop-hunt, requote, reject trades and freeze their software on purpose, then no brokers at ANY level including at the liquidity-providing level should be allowed to do that. Trading is NOT a manipulated game and shouldn't be; trading in many instruments are not and neither should spot FX trading and the fact that spot FX trading is manipulated in some unscrupulous way is NOT right. We are NOT supposed to accept reality as the truth. If the reality is flawed, we need to change that.

Software has nothing to do with it. It's people who use the software that needs to be regulated properly to stop manipulating the market AT ALL LEVELS to their unfair advantage using the software or not. Market-making is certainly flawed as it creates opportunities for conflict of interest so it is a good idea to ban it but banning it at retail level is NOT enough. Ultimately at the liquidity-providing level, you are still facing the ultimate market-makers, the banks, the last stop that makes essentially THE market. The conflict of interest is still there because they control the market and WHY would they be willing to let you profit at their expense so those banks engage in the same tactics as the brokers in retail level. And the regulators are powerless to stop it. They have actually tried looking into it; there were investigation attempts made at examining these issues but nothing ever came out of it. No recommendations or any tangible results have come out of it as far as I know. That's the problem.

So now instead of tackling the Goliath to solve the problem, the regulators are turning to clamp down David because we are the little guys and we are the ones who's make a fuss. And of course for any regulators, it's always easier to deal with David rather than Goliath. And that's why all the regulators around the world are shutting down retail FX industry. It's like if you can't play with the big boys then you don't get to play at all. Does it matter that the big boys are not playing fair? That, they don't care or don't have the energy to care.
Make your losses in demo. Earn your profits live.
  • #12
  • Aug 21, 2016 4:59am Aug 21, 2016 4:59am
I'm trading equities now because of the collapse of Forex volatility so if retail goes bust I could not care less.

Now I'm very puzzled by the witch-hunt against Forex retail traders

Who benefits from it?

Who is profiting or will profit ?

If you look close it does not seem their problem is against retail itself but more against ECNs.

Are bucketshops ( Oanda and Forex.com) lobbying hard to get rid of ECNs?

It has to be the bucketshops !! I don't think banks are behind it, because if they were they could just stop providing liquidity.

There are lots of theories out there but unless more clues come up I'm sticking with the idea that Oanda and Forex.com are colluding for a duopoly or something along those lines.
So, you think you have rights? LOL
  • #13
  • Aug 21, 2016 7:33am Aug 21, 2016 7:33am
Quoting ForexOracle
I'm trading equities now because of the collapse of Forex volatility so if retail goes bust I could not care less. Now I'm very puzzled by the witch-hunt against Forex retail traders Who benefits from it? Who is profiting or will profit ? If you look close it does not seem their problem is against retail itself but more against ECNs. Are bucketshops ( Oanda and Forex.com) lobbying hard to get rid of ECNs? It has to be the bucketshops !! I don't think banks are behind it, because if they were they could just stop providing liquidity. There...
Wow, had not thought of that, but it actually makes the most sense.
  • #14
  • Aug 21, 2016 7:47am Aug 21, 2016 7:47am
Quoting ForexOracle
I'm trading equities now because of the collapse of Forex volatility so if retail goes bust I could not care less. Now I'm very puzzled by the witch-hunt against Forex retail traders Who benefits from it? Who is profiting or will profit ? If you look close it does not seem their problem is against retail itself but more against ECNs. Are bucketshops ( Oanda and Forex.com) lobbying hard to get rid of ECNs? It has to be the bucketshops !! I don't think banks are behind it, because if they were they could just stop providing liquidity. There...
I think it's the Futures industry and the liquidity providers seeing that it's the CFTC that's picking on FXCM this time while being fully aware of FXCM's situation after that exceptional event (that quite honestly was caused by all the liquidity providers shutting down the market really). Futures industry has everything to gain seeing that some of the retail fx traders would have no choice but to move over to trade futures as they are the closest alternative and they are the ones who's contributing to NFA/CFTC. After all NFA stands for National Futures Association. Retail FX was just a tag-along that CFTC/NFA just decided to scoop into its jurisdiction to "oversee" as part of Dodd-Frank crap. But Futures was never able to compete with Retail FX due to its high margin requirement, high commissions and low volume. Ever since retail FX went under CFTC/NFA, CFTC/NFA has never stopped making Retail FX to be more like Futures; they lowered leverage cap twice, insisted on FIFO, banned hedging all to make retail FX to be less competitive vs. Futures. Now Futures just couldn't wait for retail FX to be gone.

If you think it's the bucket shops that's lobbying to get rid of the retail FX, you are not too far from the truth but it's not Oanda or forex.com. It's the banks, the liquidity providers. They are the ULTIMATE bucket shops. Just because they are big in size doesn't mean they don't operate in bucket shop mode. Everything we see those market makers at retail level do, they do it 10X worse at the bank level and the regulators, just to be fair to them, DID try to investigate and stop them but as of right now, I haven't heard any confirmation of results. Now if those liquidity providers can directly deal with us as market makers requoting, stop-hunting and freeze prices on us, basically everything that a market maker does and let me tell you EVERY SINGLE of those banks like Citi, Deutch and etc. operate as market maker when you deal with them directly, WHY would they want middle-men brokers like FXCM to be the in the middle getting a share of the profit?
Make your losses in demo. Earn your profits live.
  • #15
  • Edited 8:56am Aug 21, 2016 8:37am | Edited 8:56am
Quoting Forexia
{quote} I think it's the Futures industry and the liquidity providers seeing that it's the CFTC that's picking on FXCM this time while being fully aware of FXCM's situation after that exceptional event (that quite honestly was caused by all the liquidity providers shutting down the market really). Futures industry has everything to gain seeing that some of the retail fx traders would have no choice but to move over to trade futures as they are the closest alternative and they are the ones who's contributing to NFA/CFTC. After all NFA stands for...
My logic is that if banks had something against retail they would just not offer their services as liquidity providers.

It is very easy for a bank to say " no thank you " to FXCM.

If banks were trying to bypass the middlemen they would just offer in house Forex. But what we saw was banks closing their in house retail division. Saxobank, Citi, Deutschbank, etc they all got out of retail. And as far as I can tell ECNs generate a lot more revenue for banks than bucketshops.


I'm familiar with the futures theory, and I think it is a valid one, but I just don't think Forex traders here in America are a group expressive enough for the big guys to expend so much energy on it. If you compare Forex traders with other market participants here in the USA Forex is like nothing.

Applying the " follow the money " principle, I can see a direct benefit to the bucketshops.

Bucketshops MM like Oanda and Forex.com made so much money on the SNB fiasco that they have plenty to grease the a**holes regulators.
So, you think you have rights? LOL
  • #16
  • Aug 23, 2016 10:17am Aug 23, 2016 10:17am
http://www.cftc.gov/PressRoom/PressReleases/pr7431-16
  • #17
  • Aug 23, 2016 2:16pm Aug 23, 2016 2:16pm
Quoting PoundTrader
http://www.cftc.gov/PressRoom/PressReleases/pr7431-16
OMG!!! Talking about witchhunt!!
Make your losses in demo. Earn your profits live.
  • #18
  • Aug 23, 2016 7:13pm Aug 23, 2016 7:13pm
Quoting Forexia
{quote} OMG!!! Talking about witchhunt!!
  • #19
  • Sep 1, 2016 4:02am Sep 1, 2016 4:02am
A US court recently dismissed an instituional investor class action lawsuit against FXCM. The plaintiff who purchased FXCM stocks from mid 2013 to early 2015 claimed that he suffered significant losses during the unpredictable market event in January 2015 when the SNB removed the peg on the EUR/CHF pair in mid-day without any warning. The complaint was filed “on behalf of all those who purchased or otherwise acquired FXCM stock during the Class Period and were damaged thereby“.
I wonder, were the CTFC actions related to this lawsuit and if they were, what happens now?
  • #20
  • Sep 1, 2016 10:36am Sep 1, 2016 10:36am
In my opinion there are 2 possible reasons why all this happening:
a) some idiot with initiative just started with CFTC or
b0 (more realistic version) US retail FX business is shared between few brokers only, so if to drive that amount of customers to futures trading - it's quite significant boost in revenue for main futures firms. Remember that with e-micro possible to get 1:100 leverage compared to 1:50 with FX broker.
I wouldn't be surprised if FXCM one day becomes futures only company.
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